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tv   Inside Story  Al Jazeera America  December 4, 2013 5:00pm-5:31pm EST

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>> this is al jazeera america live from new york city. i'm tony harris with a look at today's stories. an opportunity was shot a--a student was shot at west orange high school in orlando. the orange county sheriff department confirms the 15-year-old victim is being streeted and is in stable condition. meanwhile a 17-year-old suspect has been identified and is in custody. we'll bring you more information as it becomes available. recordings of the 911 calls from sandy hook elementary school, it reveals a mixture of
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panicalmness. al jazeera will not play those recordings. around 29,000 people signed up for health insurance on sunday and monday. a figure that surpasses the total for the whole month of october. and president obama said the income ga gap between rich and r americans is widening, and jeopardizing the middle class. notic"inside story" is next. >> detroit prepares to navigate the road ahead in bankruptcy. but it's hardly alone in its efforts to solve the burden of runaway debt. i'm ray suarez. bankruptcy lessons learn and the
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real impact on people's lives. that's the "inside story." >> in the 1950s, a gm ceo famously said what is good for our country is good for general motors, and vice versa. as the auto industry sank it took it's capitol of detroit with it. today the city is shrinking and broke. to solve its financial crisis detroit will have to cut city workers pensions. illinois just pass emergency legislation to tackle $100 billion shortfall in its pension obligations. that's huge money and people will pay the price. on this edition of inside story we'll look at the trade-offs and solutions when balance sheets
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teeter to the brink of disaster, and we start in detroit. >> let me just say that the judge has spoken, and i do think it's a tough day for all of us here in detroit [♪ music ] >> once the nation's fourth largest city, the heart of the auto industry and the soul of american music today's detroit is a portrait of urban decay and facing a water shed moment. it is the largest municipality in u.s. history to file for bankruptcy. a federal judge ruled the city is not only insolvent but in a decisive verdict declared that pensions will be included on the chopping block. dave bing is the outgoing mayor. >> the only way we stayed alive, quite frankly, is through cuts. we cut everything that we could. unless there is more investment coming into the city, and a new
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stream of revenue there was no way, i guess, to fix the the problem. now with bankruptcy emanant i think that debt off of our balance sheet will be less than it is today. that will be positive in a going forward basis. >> the judge restored essential services like basic ambulance, fire and police protect. the city's public workers and retirees will bear some of the brunt of the cuts. a rare decision as benefits are typically cleaned untouchable, protected by the michigan state constitution. kevin orr is detroit's emergency manager. >> there is not ruc restructure.
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>> bisi onile-ere is covering the bankruptcy for al jazeera. >> the judge has given orr until march to submit a restructuring plan for the city. this is a report that the emergency manager said he will complete within the next couple of weeks. this is when we'll get a good idea of how deep orr's cuts will go, and how he plans to generate new revenue here in the city. retirees will get a better idea of how much they stand to lose. >> with a crushing $18 billion in debt, unions, pension funds and retirees as well as other creditors could stand to lose. for every $1 detroit collects, $0.40 goes back to paying off legacy debt, a figure that could rise as much as $0.65 without bankruptcy relief. when a city files for chapter 9 it must first qualified for
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protection before reducing it's debt to creditors. additionally it must negotiate in good faith with those creditors who understand that they'll be paid also than they are owed. some say that hasn't happened. >> when you're an institutional creditor, you make decisions. when you work for the city of detroit for your entire life, you retire and then they say sorry, we didn't mean it, that's a very different situation. >> despite being rare and last resort, detroit is not the only municipality who has sauce assistance in debt reduction. since 2015 eight cities including roa central falls, owe island, including pension, and
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then came out of debt and assu assured bonds would be paid in full. and then jefferson county is the second largest municipal bankruptcy in history. in california, the city filed for bankruptcy in 2012 with only $150,000 in the bank unable to pay for the basic day-to-day operations. >> it would be an ongoing disaster if the city continued as we are going without reorganizing. >> debt and pension liability is not just a municipal problem. the state of illinois is feeling the billion dollars, solving
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fissioncal problems of the magnitude of detroits or illinois is more than moving numbers on a balance sheet. it involves tough choices, vital services and people's lives. joining us to discuss detroit's bankruptcy and lessons the motor city can learn are kill, director of state and local fiscal health for the few charitable trusts. in pennsylvania, david, a state appointed receiver for the city of harrisburg. he specializes in municipal bonds and dean, professor of economic research. kil, cities across the country saw declining sales takes revenues, declining tax ref news
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as people's homes reduced in valley. value. >> a lot of cities are experiencing fiscal stress but i want to reiterate bankruptcies are rare. those who issue debt in the credit market only 10 a year going "g" into bankruptcy. while fiscal stress is a chief concern, bankruptcy is still a very rare phenomenon. >> is it stuffer at a time when the economy is not robust when the state's in which these cities and counties are located are also feeling a lot of strain, is it tough for put these restructuring deals together? >> the state plays a significant role in the fiscal health of the city. they offer state aid to local governments. that makes up a third of the city revenues. when cities cut back due to their own fiscal pressures local
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governments experience a lot of fiscal squeeze as well. >> are there fewer good choices when you're finally pushed to make a bankruptcy declaration. >> bankruptcy is a measure of last resort. joining anybody enjoys having to papaying pensioners, or putting cops on the street or fixing potholes and doing things that create vibrant cities. when they declare bankruptcy it is an indication they have got themselves backed in a corner that they cannot get out of. >> pennsylvania is a sizable place with an enormous budget. what got the city there and how did it get out? >> there were two problems. on a regular basis the revenues that the city could generate through taxes were insufficient to cover regular expenses.
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a lot of that as with any city, has to do with labor costs. so in pennsylvania because of the stay laws that the cities operate under, it was difficult to keep their labor costs within their ability to raise taxes. the other big problem in harrisburg was that they undertook an incinerator project to dispose of trash and issued a lot of bonds to try to get the incinerator to operate properly. it was just basically a functional disaster. it really faced those two problems which caused a lot of stress on everything in the city's budget. >> dean, right now the judge has cleared the way in detroit for a wide set of stake holders to take a haircut. a lot of cities are still in the process. does that decision make it more
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to be that places like stockton, san bernardino, may look back at their pensioners, their obligations to city workers in a way that they might not have before? >> well, every city has its own circumstance. what was striking in detroit, and i don't know if this is the case in california, is that in michigan, the state constitution guarantees pension. this in my view was a striking ruling. the constitution is a creation of the state. it says pensions should not be cut yet the creation of the state, the city goes into court and goes through a process that is almost certain to cutting pensions. to my view that's strange and strong court ruling. if you could do it even in spite of the state constitution, i gather some other cities may look that way. there are reasons that you don't want to cut workers' pensions.
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i don't think people will be anxious to do it, but it will increase possibility. >> we'll take a short break. more with our guests in a moment. this is "inside story." is
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>> what happens when big cities like detroit go bust. people are effected as politicians make hard fiscal decisions. we closed last segment talking to dean baker about retired workers taking a hit. in fight after fight, in illinois, wisconsin, in other places when the issues has become workers pensions. they have been portrayed as greedy municipal workers. people who would drive the city, the county into bankruptcy rather than do their fair share to get them out. is this a problem? i mean after all these pro negotiated between collective bargaining agents the states and the counties and cities. >> the problems that have been earned are promises that need to be kept.
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the problem is the benefits, retirement that the workers have earned, it's the fact that the state has never put aside what they were opinioned to year after year and they've developed in huge unfunded liability. you see the kicking the can down the road coming to bear on today's workers and it's unfair. most states that have enacted reform have tried very hard to preserve the benefits to the existing workers while changing plans for workers going forward. in detroit's place they ran out of time and money. >> in the laws governing this part of our civic life, were states able to treat funds in a different way, is this a recent development? >> well, you had variation across states. i think the recent problem--a lot of states had been somewhat reckless, but the recent problem
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dates from the stock bubble. what happens is in the 90's the stock market was going up so much that states felt they didn't have to contribute to their pensions. the bond agencies blessed this. we assume that the bubble will continue inperpetuity, and they didn't. so you had a lot of places, illinois being one of them where they stopped making the required contributions in the late 90's which was okay when the market awas really high. but now it came back to earth. and you miss the contribution in one year, two years, but many years, you get into trouble. >> in harrisburg did it involve
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pensions take a haircut. >> the pension funds were well funded. but the medical costs, regular wage and huge amount of bond debt that was outstanding. when you look at the human dimension it's very sad and distressing what happens to workers in these situations. but they're not the only individuals involved. there are the tax payers and the city. when i was receiver in harrisburg i would talk to the citizens all the time who were very concerned about what it meant to them and how much taxes they would have to pay. the other i think said in your introduction people talked about the constitutional investors but a lot of bond holders are holding shares in mutual funds and using their retirement money to invest partially in bonds. when you have a meltdown situation like this, it's not just the workers who are hurt but the toda taxpayers, the citd
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bond holders, the individuals. when you're doing a work out like this, the goal is not to let anybody off free. i know in some of your guests are arguing that pensions should be sacks cro sac rosant. at debt is too great for the tax payers have to pay. all parties will have to accept that they will have pain as part of the process. it takes a while to get there. you see detroit with its pensioners saying don't touch us. the goal is to have a fair and proportion nat loss suffered by everybody who is dealing with this city in distress. >> i think david has a good
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point. the retired city electrician has a face, we can put him on the 6:00 news, and understand him very well. but in the case of, for instance, franklin temple ton and investments, they own $35 million of stockton paper, and in the recent proposal from the city they're offering less than a penny on the dollar. well, franklin temple doesn't have a face. >> it's symmetry. you expect them to have well informed people investing their money. i mean, you might have ill informed people. you might have ordinary people putting their money there, but the person's investing the money is getting paid a lot of money to know that stockton is a high risk place and they made a mistake. there is symmetry there. but another thing these people worked for theirtñpective.
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he'll look to see that everyone has sharing of the pain going forward. one thing that makes detroit
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different than some example, you mentioned central falls, it was contentious from the beginning. they took on a highly based model where the union and other stake holders were at the table and they were able to work out their differences pretty quickly. they also had a state playing a significant role offering up some direct aid in the form of $2.4 million to soften the blow to workers. >> how is detroit different? >> well, the state has been largely absent with what has been going on in the city. early on when the city was struggling to sort of make ends meet, so to speak, the state agreed to collect taxes that was owed to the city where workers who live in the city who were employed in the suburbs were supposed to pay income taxes, and that was never done and that
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kind of aid never came to the city from the state. >> i'll pick up our conversation in a minute after this break. you're watching "inside story" on al jazeera america. >> and join the conversation online @ajamstream.
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power of the people until we restore our freedoms and rights. on this occasion i would like to honour the memory of those who have fallen, and i appreciate and pray to those who have been injure injured, offering condolences to their families, assuring them that their blood will water the tree of freedom for the homeland. here ends the message. president. the president reiterated to us that he is holding steadfast and adhering to his legitimacy as the lawful legal president of egypt.
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this was a message dig tated verbally to -- dictated verbally to us by the president mohamed >> welcome back to "inside story." i'm ray suarez. we're wrapping up our conversation on municipal debt, bankruptcy and the city of detroit. still with us, kal, david the state appointed receiver of the city of harrisburg, and dean baker in research.
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when something so big goes down, does that send a shiver through the entire system and make a difference landscape that might meet the next city or county to go through this? >> when you look at the terrible situation in detroit, the one good thing about it is that a lot of legal issues which are uncertain now are going to be resolved. for example, are pants sacrosant, are bonds sacrosant. i think it's going to make it easier for municipalities to sit down with their workers, bondholders, or whoever it is that they have to negotiate with, and get this done. this is what is going on in harrisburg. it's not going into bankruptcy.
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they had to threaten it to get creditors to the table. unions, and everyone else. but there has been a plan that was accepted by all the creditors. they knew they had to take losses and they negotiated a fair and reasonable st.. settlement. there are a some funds that will complete the work out for harrisburg. >> david sees a tool kit coming ouout of the experience in detroit, do you? >> i worry about the tool kick. you worked for this, but turns out we don't have the money. are we going to go back to people we sold property to, would we take it back? i think it's a very extreme measure. i think not really justified. i under the detroit but michigan stayed out. it. detroit is michigan's responsibility as much as the
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governor might like to pretend otherwise. >> but do you have to do it for print, saginaw and others. >> i think you're going to see that story, i would be worried working with the cities. >> detroit is so big, how does it change the game going forward? >> well, i think certainly you have to treat detroit as it's own entity. dean mentioned that each city is different, and that's a point i would stress. many states have programs to intervene with distress before going to bankruptcy. it is an end game that no one wants to find themselves playing because it means that it's
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run--the city has run out of options and it really needs to renege on many of its promises. >> knowing what you do, do you think detroit could have avoided getting here? >> detroit could have avoided getting here if they had intervened earlier. no one was surprised when detroit filed for bankruptcy. the sad trust about detroit is that it's been on a long steady decline and people recognized that. the local leaders kicked the can down the road by borrowing for other debt they had issued. it was a resolving door of credit and they created their own problems. this could have been avoided. >> kale, dean, david, thank you all. this brings us to the end of this edition of inside story. thanks for being with us. in washington, i'm ray suarez.
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every year in south africa thousands of teen-aged boys in the xhosa tribe undergo ritual circumcision which according to ancient custom, will make them men. but there are growing concerns that too many of these ceremonies are ending in tragic mutilation and death. "people and power" asked a south african filmmaker, who has himself been through the ritual, to investigate.